Estate Planning in New York requires Knowledge of State and Local Tax Obligations

The case of Billionaire Julian Robertson highlights an issue less frequently talked about when it comes to estate taxes: The presence of some state and even city taxes on the estate of a deceased and/or his or her income while still alive. In this case, Mr. Robertson recently won a tax case dealing with income while he is alive. But the decision might also impact any claim made that he owed New York income taxes upon his death.

We frequently report on our New York Probate Lawyer Blog regarding the ongoing saga of the federal estate tax — on hiatus this year but slated to return next year on estates valued at more than $1 million. But, as we discussed when Yankee’s owner George Steinbrenner died, estate planning in New York must take into account much more than just the federal estate tax when it comes to proper tax planning.

In other cases, it is equally important to protect your estate from undue taxation while you are alive.

In the case of billionaire hedge fund pioneer Julian H. Robertson Jr., it all boiled down to where he spent a pair of days. The divided three-member New York State Tax Appeals Tribunal upheld an administrative judge’s decision that Robertson was not a resident of New York City in 2000, saving him $27 million in taxes, according to Forbes magazine.

A dissenting opinion said the decision could create “confusion and mischief” in the future by placing the burden on tax authorities, who under the ruling were required to prove Robertson was in the city on certain days rather than requiring Robertson to demonstrate “by clear and convincing evidence” that he was not within the city.

Robertson was warned by his advisor not to spend more than 183 days a year in the city or he’d be taxed as a full-time city resident since he lived in the city more than half the time. His legal residence is a 10-acre estate in Locust Valley, Long Island. Becoming a resident of New York City would have subjected his worldwide income to the city’s 3.88 percent tax. Robertson assigned an executive assistant to track his days and let him know when he was nearing the limit.

He spent additional time in the city in 1998 and 1999 when is late wife Josephine was being treated for breast cancer — and he willingly paid the city taxes. But, while publicly supporting the estate tax, the 78-year-old did not want to pay additional taxes on income he felt were not legally owed.

In 2000, Mr. Robertson claimed that he did not exceed the 183 days and no additional taxes were owed. The city challenged his whereabouts on four days that would have put him over his limit and lost the argument on two of those days.